[a]list daily's Steve Peterson takes a look at the recent reports of next-gen consoles selling out

Each week, marketing expert and senior [a]list daily editor Steve Peterson examines the key issues affecting brand marketers and the industry at large

The next generation consoles are on the way to store shelves this fall, but some major retailers are already putting a halt to pre-orders. GameStop has halted PS4 pre-orders, putting people on waiting lists, and Toys R Us has also stopped taking PS4 pre-orders. The Xbox One is sold out at Best Buy for the Day One edition, and Amazon has also halted orders for that version. What's going on?

There are a couple of possibilities. One is that so far Microsoft and Sony haven't allocated very many units to different retailers, and demand is stronger than initial estimates. The stores could have under-ordered, or Sony and Microsoft have been unwilling to release more units to the retailers because of potential supply issues down the road. In the past, new consoles have had initial problems to overcome in manufacturing, often with chip yields - the original Xbox had that problem, as did the PS3. Rumors are that Microsoft may be having some yield issues on Xbox One chips, which would lead to the company being cautious about guaranteeing units to retailers.

"The larger issue that should be worrying Sony, Microsoft and Nintendo is the possible arrival of a new generation of consoles from three even bigger competitors: Apple, Google, and Amazon"

The more sinister theory is that Microsoft and Sony could be creating an artificial shortage in order to win marketing points by claiming the console is sold out. That seems unlikely, because the companies directly benefit by getting the maximum number of consoles out to gamers as quickly as possible. Profits come from software sales, and if people don't have the hardware they won't be buying software. It's most likely that Microsoft and Sony are just being very careful about what they promise to retailers. If the manufacturing problems get solved in time, more units can always be allocated for pre-orders.

The larger issue that should be worrying Sony, Microsoft and Nintendo is the possible arrival of a new generation of consoles from three even bigger competitors: Apple, Google, and Amazon. All three are rumored to be in development on consoles that would sell for $99, play mobile games and provide a vast array of media content.

Meanwhile, Microsoft and Nintendo are making initial marketing moves to boost console sales for the holidays by giving key potential customers some hands-on experience. Nintendo set up a special promo event at over 100 Best Buy stores during the week of E3, giving consumers the chance to play some of Nintendo's new titles for the holidays. Apparently the program was very well-received. Microsoft is planning the same sort of thing for the upcoming San Diego ComicCon, where some Xbox One titles will be offered up for playing.

The gaming market is far larger than the console business alone these days, and the mobile gaming market is growing especially quickly. Marketing has become the biggest single issue facing mobile game makers, with discovery of an app as the key concern. That usually means advertising on mobile networks to let people know your game exists. Mobile advertising has grown an astonishing 83 percent over the last year to reach $8.9 billion worldwide. Mobile ads both provide revenue to game developers and aid in game discovery. There are over 100 advertising networks on mobile right now, and trying to map out campaigns for even a small fraction of these networks is a daunting task for marketers and even more so for developers without marketing acumen. Some companies are popping up to address this concern, like Grow Mobile, which is offering a mobile marketing dashboard to allow developers to track multiple ad campaigns from one place and gauge the effectiveness of each.

The marketing challenges in gaming continue to grow, and marketers need to get more creative to meet those challenges.

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An article about possible shortages of PS4 and XBone ends with marketing report on mobile ad market and warnings that Apple, Google and Amazon may or may not release something that may or may not be somehow competitive to Sony's and Microsoft's products... Do we really need to read that again and again?

The more sinister theory is that Microsoft and Sony could be creating an artificial shortage in order to win marketing points by claiming the console is sold out. That seems unlikely, because the companies directly benefit by getting the maximum number of consoles out to gamers as quickly as possible.

umm nothing sinister about it, its a tried and true and very effective marketing technique. The fact that it is happening this far out from release only further strengthens the case that it is marketing.
For the next month or so, during the dog days of summer, they can push this whole " systems are sold out, hard to get, big shortage" to drive up interest, free media coverage, and hype. Now a few weeks before actual release, they quietly release a ton of units through its supply chains, so that retailers can fulfill and supply units to all that preordered and are on waiting list during opening week Everyone is happy, software is uneffected, and the companies sell a boatload more of their units then they would of other wise due to the made up supply shortage, and popularity hype it created by doing little more than creating a shortage hype meme.

This has happened with every major console release this century, so the saga continues... As Todd noted, it'll go as planned except for the people who stupidly get ripped off on ebay when they spend thousands on the same system they believe will be "sold out" for the foreseeable future. I worked retail in a small indie shop from the Dreamcast to about when the Xbox 360 was announced and it's was an intriguing cycle seeing waves of distributors get systems in stock, run out, get them back in and so forth and so on.

On the street, word was all about shortages and weeks of potential waiting. Meanwhile, some larger shops gamers didn't frequent had a nearly steady stream of systems coming in and not selling. I can recall having to hoof it to a nearby Kmart on a few occasions to buy four to six PS2's (the most I could carry at once and still walk quickly) so we could resell them at what we paid for them plus tax (our regular customers bought loads of games and accessories).

Or worse, as I lived closest to one of our big distributors, having to hoof it up there and grab (eek) a dozen PS2's and take them by subway all the way to the shop in two HUGE black garbage bags. I looked like a homeless guy with those, so no one bugged me. The walk to the subway and then to the shop was super turtle speed...

From my experience it's just damn hard to get good yields on new chips, and these boxes also have non-trivial assembly and a lot of components to worry about. Manufacturing is already well under way in order to start shipping in quantity for November delivery. This process takes months. Until you've actually gotten all the assembly lines up and running, it's difficult to know how many units you can make in a given time frame. Chip yields are crucial and not easy to predict, or how long it might take to improve yields.

The last thing Sony and Microsoft want to do is piss off retailers by promising X units and delivering less than that. Or piss of customers who pre-ordered and then couldn't get one on release day. To avoid that, they logically don't promise too many units early in the manufacturing process; they make estimates based on low yields (like 10 or 15%) and hope for higher yields sooner. If they get better yields, they can build more units and get them out to stores in time for launch. No one will be pissed off if there are more units in stores than expected.

Playing games with retailers about pre-order numbers to drive PR would be a risky strategy. Getting more press attention is really not the objective; the objective is to make more money. You only do that by shipping lots of hardware and software. If your console isn't worthy of good sales long-term, some short-term PR about "shortages" isn't going to make a big difference in your bottom line. If your console is a good one that you think will sell well over time, then you would want to put all your marketing and PR effort into telling people how great it is. And get manufacturing to ship as many units as possible as fast as they can. Marketing and PR generate demand, manufacturing fulfills it. Creating fake demand through false "shortages" means you end up with a pile of unsold inventory, which is quite costly.

Getting more press attention is really not the objective; the objective is to make more money

in this day and age its one and the same.

plus..this approach and plan takes no elaborate planning, this can be done and decided in one meeting. Limit the initial promised units to retailers, ( which is also CYA in case something unforeseen does happen during manufacturing's first run) Hold back inventory til month of release in order to create buzz, and the week before store date, simply release into the supply chain the inv to cover initial sales.

This is all marketing 101, how to create a buzz, how you sell the sizzle not the steak stuff.

If these systems limp out of the gate, its game over before it begins. These companies have to be looking at WiiU sales and say, umm we have to create some buzz here because otherwise we are doomed and nothing creates a buzz more in the toy industry then "limited" edition, limited stock, etc. IN the average consumers mind, if something is sold out , cant find it anywhere, it therefore must be something pretty darn special, and that is the buzz marketing execs dream about.

and finally

Creating fake demand through false "shortages" means you end up with a pile of unsold inventory, which is quite costly.

Shortages or not the PS4 and XB1 will have sell outs during the holidays. That doesn't mean "every single store" in your area but I'm pretty sure there will be people who want one or the other during launch week and will have to go home empty handed due to early demand. This is the way it's always been since atleast the Dreamcast launch. The only systems I remember not selling out at launch are three handhelds(PSP, 3DS and Vita) and the Wii U. But I think the PS4 and XB1 will do reasonably better than the Wii U at launch and there will be shortages/sell outs for each.

I don't see how exactly Google, Apple and Amazon preparing entry market consoles are threats to hardcore gamers' consoles like the Xbox One and PS4. Two entirely different markets, purposes, products, targets, etc.

I don't get how having your biggest retail channels stop taking pre-orders is a good thing. I get saying that supplies are limited. I'd even get it if a few independent retailers had to stop taking pre-orders and that got blown up by Sony and MS into a "Oh my god! We're running out fast!" story. But for Gamestop, Toys R Us and Best Buy to actively not take orders doesn't make sense to me. One of the biggest metrics in this industry is pre-orders, stopping that even from a data gathering POV is nuts in my opinion.

I don't get how having your biggest retail channels stop taking pre-orders is a good thing. I get saying that supplies are limited. I'd even get it if a few independent retailers had to stop taking pre-orders and that got blown up by Sony and MS into a "Oh my god! We're running out fast!" story. But for Gamestop, Toys R Us and Best Buy to actively not take orders doesn't make sense to me. One of the biggest metrics in this industry is pre-orders, stopping that even from a data gathering POV is nuts in my opinion.

The installed PS3 and 360 base is approx. 140 million and with the exception of a handful of titles, most AAA games now only reach a single digit percentage of the base. And the best selling games only reach on average, 10 to 20 percent of the base. So if the overwhelming majority of PS3 and 360 have already stopped buying and playing the types of games both new systems will exclusively feature... what possible incentive will they have to invest $400 to $600 in a new system?

The majority of preorders were most likely placed by hardcore COD, Halo, Madden, FIFA fans and hardcore multiplayer fans in general. Collectively, they represent approx. 20 to 25 million console players worldwide. So they could be responsible for the systems "selling out" but outside of this small and demographically narrow pool of players, is there any true mass market interest in either system? A year from now the installed base for both systems may not be much larger than the current number of preorders.

1. Current generation is the most successful ever, from a hardware stand-point and we should actually expect both consoles to pick up steam vs. the last year as 360 prices will plummet and Sony expands/cheapens in South America.
2. 10-20% of 140 million is *extremely* good
3. 1 percent of 140 million is *great* (sign me up!)
4. Who said gamers stopped buying PS3/360 games? Was it the Last of Us selling 3.5 million copies in 3 weeks? Was it State of Decay being one of the fastest selling XBLA games ever? Did you read the news and see a new GTA game (which will move ~25 million lifetime units) is coming out *only* on 360 & PS3?
5. No one I know plays any of the 4 games you mentioned, but they are buying PS4s. For many of them it is because they will have access to PC games the didn't in the past. This is very easy for people to forget. PC has *far* more games than any other platform but *most* gamers do not have PCs. Consoles have always been an excellent PC replacement and this gen's look to be the best yet.